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Use Technology To Combat Fraud
There is no doubt that check fraud has increased immeasurably during the past few years. Security officers are aware that check fraud continues to be a growth industry.
We've learned the hard way that those who commit check fraud are technically sophisticated, educated, organized, innovative, adaptable, cunning, and tend to be entrepreneurial in nature.
Check fraud techniques have also expanded with the times. They now include the use of counterfeits, forged signatures and endorsements, kiting, and taking advantage of the Expedited Funds Availability Act (Regulation CC).
As we develop new markets and new products, we find all account types and check types are fraud risks, including on-us checks, foreign checks, local and non-local checks, personal and business checks, and new accounts as well as long standing accounts.
We know all this. What we need to know about now are the many fraud prevention tools now available which can reduce our check fraud losses. By implementing and adopting some of the most recent and dynamic proactive measures, we are able to fight back.
Early Warning Technology - In The Back Office:
FPS Fraud Prevention System
The FPS Match program uses a database of names, addresses, social security numbers, and other information obtained from a review of cases, fraud attempts, newspaper articles, and various types of incoming intelligence. All new customer data can be matched against this database daily to identify potentially fraudulent and/or undesirable new account relationships.
SAM-Suspect Activity Match
The SAM program was designed to compliment new account screening activity in "high risk" new accounts, which are then tracked for sixty days, during which first-time check deposits meeting a pre-established threshold are flagged and confirmed with the drawee bank.
Maker Match
The Maker Match program uses a database of MICR line information. The MICR line of checks processed (deposited, cashed, and payment items) is compared daily to the Maker Match data base to prevent return item losses and to identify fraudulent accounts.
Identity Takeover
Reports changes of address followed within thirty days by requests for debit cards, PINs, PIN changes, and/or checks.
UV Ink Recognition
The use of check stock containing UV ink snippets which are verified to identify counterfeits. This process is not yet high speed/high volume, but may be useful on very large items.
Sterling Software - Vector:Kite
This program uses check transaction history and other factors to automate the analysis of kite suspects. Once an account is triggered as a kite suspect, the system performs previously labor intensive tasks, such as reviewing patterns of deposit activity via the routing/ transit number to quickly identify those accounts which are more likely to be kiting.
Early Warning Technology - At The Point Of Service
Excess Debit Indicators
Tellers are locked out on the third debit transaction or debit total in excess of $3,000 in one business day.
MICR Line Verification
Process which confirms the presence of MICR ink on any check.
Positive Pay
Verifies on-us debit transactions to an issue file for verification of the check amount and check number. If the check number and amount match the issue file, the transaction is approved. If there is a discrepancy, it is denied. This procedure can also be used back office.
ChexSystems/TeleCheck
Provide negative database inquiry to verify social security numbers, drivers license information, previous "closed for cause" history reported by other member banks, and NSF/closed accounts reported by retailers. Can also be used back office.
Intraday Duplicate Check
All cashed checks are verified against a check history file to determine if the check number has already been presented.
Carreker Antinori On-Us Check Fraud Detection System (ASI/16)
Detects unusual check activity using an archive file to establish an account profile. Based on established thresholds, the check number and check amount are compared to the profile to identify potentially fraudulent activity. Will reveal check number out of range, already presented, or missing; an account with no history; and if the dollar amount is higher or lower than factored average.
Checks-For-Cash
This is a fee-based check cashing service offered to individuals who apply for membership or are employees of companies with check cashing agreements. Applicants go through an account opening process, which includes video imaging for recall during negotiations.
Adopting proactive countermeasures is essential to combating check fraud. When planning, take into consideration the fact that you need a multi-faceted approach.
One important consideration is the sound maxim of allocating resources equally between investigation and prevention. Another is the necessity to communicate awareness of the problems with both senior management, internal partners such as audit, legal, check processing, and external partners such as law enforcement, to discuss fraud concerns.
Our future effectiveness in security depends on implementing an early warning technology that will quickly identify suspect activity and high risk account relationships - and help us to reduce our losses.
Thanks to Charles Bock, Director of Fraud Prevention and Investigation, Chase Manhattan Corporation for sharing his research and expertise with the BANKERS' HOTLINE
Copyright © 1998 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 8, No. 4, 4/98
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